Early this month the Euro made a new high against the US Dollar. But the top had some significance to it, i.e. it the market had a rather significant reaction that was a great short opportunity. In this post I address how this could have been traded for a 150+ points profit.
First let’s have a look at some Gann Angles from the October 2008 top. There is a lot to say about Gann Angles, which goes beyond the scope in this post. In short Gann Angles show the relationship between price and time. You can compare them with trend lines and speed angles, but there is a lot more than that to it.
The chart below shows how 3 different angles from the September 08 top provided resistance and support over the last couple of months. This in combination with other factors gave me some confidence that the top early this month would creat a short opportunity.
Euro Gann Angles
During the last trading session last week, the Euro Futures contract made a top of 1.4419 before heading South to 1.4155.
I was looking to place an order before the US session started, hence before the 1.4419 spike was made. I was looking to enter short at 1.4350. I like to have tight stops in order to minimize the risk and achieve a decent Risk-Reward-Ratio (RRR). The idea was to place the stop loss at 1.4400 – a 50 points risk, with a target of 150 points profit. That would have given an RRR of 3 (profit 3 times larger than the risk). Now, this stop loss would have been too tight and I would’ve been stopped out before heading into profit. A 70 points risk would have worked better.
The Euro can be very volatile so care should be taken when placing stops. However never risk more than what your trading account is comfortable with!